Exam 16: Tax Deductions and Travel Expenses for Employees and Self-Employed Individuals

In 1997, Paige paid $200,000 to purchase a new residence. She paid a realtor $5,000 to help locate the house and paid legal fees of $3,000 to make certain that the seller had legal title to the property. Under the provisions of tax law in effect at the time of the purchase, she deferred a gain of $30,000 from the sale of a former residence in 1996. In 1999, she added a new porch to the house at a cost of $15,000 and installed central air conditioning at a cost of $12,000. Since purchasing the house, she has paid $2,000 in repairs. What is the adjusted basis of the home?

Which of the following expenses or losses could create a net operating loss for an individual taxpayer?

Generally, economic performance must occur before an expense may be deducted. In some cases, this requirement of economic performance may be waived. Discuss the conditions under which economic performance may be waived and an earlier deduction may be allowed.

Except in the case of qualifying accelerated death benefits, if a life insurance policy is sold or surrendered for a lump sum before the death of the insured, the amount received is taxable to the extent it exceeds the premiums paid.

All of the following are true except

ChocoHealth Inc. is developing new chocolate products providing abundant health benefits at low calorie counts. For the past three years, it spent an average of $500,000 per year on research. This year ChocoHealth has spent $900,000 on research. The company has elected the simplified credit. For the current year, it will earn a research credit of

This year Bauer Corporation incurs the following costs in development of new products: No benefits are realized from the research expenditures until next year. The corporation does not claim Sec. 179 or bonus depreciation on any of its assets. If Bauer Corporation elects to expense the research expenditures, the deduction is

Cheryl owns 200 shares of Cornerstone Corporation common stock which has an adjusted basis of $60,000 and a market value of $75,000. John owns 200 shares of Cable Corporation with a $75,000 fair market value. a. If Cheryl and John exchange their stock, what is the amount of Cheryl's realized gain? b. If Cheryl and John exchange their stock, what is the amount of Cheryl's recognized gain?

Identify which of the following statements is true.

A taxpayer may not avoid responsibility for payment of income taxes by assigning the income to a third party.

Losses from passive activities that cannot be deducted currently are carried over for up to 5 subsequent years.

On January 3, 2015, John acquired and placed into service business tools costing $10,000. The tools have a 3- year class life. No other assets were purchased during that year. The depreciation in 2018 for those tools is (Sec. 179 and bonus depreciation were not applied)

A closely held corporation will generally prefer to pay higher salary and lower dividends to shareholders who are employed in the business.

The qualified retirement savings contributions credit is based on a maximum contribution of $2,000.

Which of the following item(s) must be included in the income of the respective employees?

Divya is age 22 and a full- time student with $8,000 of income from part- time and summer jobs and $2,600 of interest and dividend income. The total cost of her support for the year is $15,000. Divya is not subject to the kiddie tax.

A wage cap does not exist for which of the following self- employment taxes?

Dale gave property with a basis of $16,000 to Sarah when it had a FMV of $12,000. No gift taxes were due. Sarah later sold the property for $22,000 resulting in a recognized gain of

The holding period of property received from a decedent is based on the actual time the property is held by the decedent.

Elaine owns equipment ($23,000 basis and $15,000 FMV) and a building ($136,000 basis and $148,000 FMV), which are used in her business. Elaine uses straight- line depreciation for both assets, which were acquired sever years ago. Both the equipment and the building are destroyed in a fire, and Elaine collects insurance proceeds eq the assets' FMV. a. What is the tax treatment of these two transactions? b. Assume that Elaine is only able to collect $3,000 from the insurance company for the equipment loss. What is treatment of the two transactions (assume the basis and insurance reimbursement remain the same for the building).